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November 27th, 2018 at 12:48 pm

There’s new evidence giving cash to the poor is more transformative than we thought

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When it comes to poverty alleviation in the developing world, cash transfer schemes have been at the center of a difficult debate. For years, donor agencies and governments were urged to integrate the poor into their economies by providing them with a basic amount of cash. Yet those programs have been dogged by controversies, with critics arguing they encourage dependency, negatively impact labor, and pit community members against each other.

Using evidence collected in eight countries in sub-Saharan Africa over a decade, a new paper dispels some of these common misperceptions about unconditional cash transfers in Africa. The research was conducted through the Transfer Project, a multi-partner initiative that includes the UN agencies for children and food, national governments besides national and international researchers. Unconditional cash transfers, or UCT, are different from universal basic income in that they are time-bound and are given to poor households who make spending decisions consistent with their needs.

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And even though the transfer size to families in respective countries differed, the results showed cash injections generally empowered beneficiaries to invest, seek their own entrepreneurial initiatives, and didn’t lead to price distortion or inflation at a local market level.

One argument against direct cash payments is that recipients spend it on alcohol or cigarettes instead of meaningful ways that would earn them more income. Yet the study’s authors found that having access to cash didn’t induce higher spending on what they called “temptation goods or non-essential luxury items.” Instead, families made a range of investments that included buying their own livestock and agricultural assets including hardware like axes and hoes besides fertilizer.

This shift in income also meant more productive households, with families in countries including Zambia, Zimbabwe, Ethiopia, and Lesotho, gaining more independence to boost their own farm and business activities. Households just didn’t use the cash for immediate subsistence needs too but also for investment in human capital. In six of the eight countries—except for Zimbabwe and Ethiopia—secondary school enrolment jumped between 6.5% and almost 16%. Fertility rates among households also decreased, allaying the fear families would have more children just to increase benefits or maintain eligibility in the program.

Across Africa, many governments are rolling out cash transfer programs not just to alleviate poverty but also help boost business and fiscal growth. The YouWin program in Nigeria, for instance, awards cash to young entrepreneurs in a bid to generate jobs. In Malawi, cash transfers are supporting young women’s ability to find financial independence and lead healthier lives. But while cash transfers shouldn’t replace governments’ long-term plans to improve governance and help citizens lead a better life, the study’s authors say that doesn’t mean they shouldn’t consider UCT an option.

These perceptions, they argued “are actually “myths”, and insofar as they continue to be cited in policy debates, limit the range of feasible tools governments can consider to reduce poverty and support inclusive growth.”

Via Quartz 

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